"Not only is she a friend of mine but she's someone whose insight, judgement and fighting spirit I've come to respect," Mr Shorten said.

Ms Keneally said she had decided to run on Monday after a "persuasive" call from Mr Shorten at the weekend. She quickly claimed underdog status in the contest, but said: "I've never shirked from a fight".

"The people of the Bennelong electorate deserve better," she said. "They don't deserve the Liberals' cuts to Medicare. They don't deserve the Liberals' $100,000 university degrees. They don't deserve the Liberals' rising power prices and they certainly don't deserve the slow and expensive NBN that's being rolled out right now. That's just annoying the families of this electorate."

Ms Keneally said she was not running because Mr Alexander was a dual citizen.

"I mean, that's why we're having this byelection but that is not why I am running. I am running because this is a moment, this is an opportunity for the community in which I live to stand up and say to Malcolm Turnbull: 'Your government is awful. Enough is enough'."

Mr Keneally admitted she did not live in the electorate but rather about 800 metres outside it. But she emphasised her strong ties to the area where she has lived and worked.

"I dare say that I spend a great deal of time in this electorate and if Mr Alexander wants to stack his minutes up against mine, I'm happy to do that," she said.

Mr Alexander currently lives outside the electorate too, in Bondi.

She described her rival, Mr Alexander, as a "lovely guy".

"He's quite affable. He would certainly beat me in a tennis match, no questions asked. He might be a little sloppy with paperwork. I think that's fair to say," she said.

Asked whether she had ambitions to one day be prime minister, Ms Keneally said: "Not at all. I'm here to run the best campaign possible for the people of Bennelong and I hope to be elected their member in the Federal Parliament. That's what I'm here for."

Ms Keneally served as NSW leader from December 2009 to March 2011. Since then she has worked as an adjunct professor at Macquarie University and as a prominent current affairs commentator on Sky News.

While the 48-year-old was born a US citizen, she renounced her foreign allegiance in 2002 - before she first ran for NSW state parliament.

Mr Shorten added: "This byelection is a chance for the voters of Bennelong to send a wake-up call to Mr Turnbull and his government. This is a chance which I think a lot of people in Australia would like to have - that has fallen to the people of Bennelong - to send a message against the dysfunction and the chaos of the current government, the policy paralysis, the failure of leadership."

Labor last won the seat of Bennelong in 2007, when high-profile candidate Maxine McKew defeated the then sitting prime minister, John Howard. Mr Alexander won the seat back for the Liberals at the next election, in 2010.